When I was reading the Pension Commissions report for last weeks article, I was struck (and angered) about how many pension reports and roadmaps I have read over the last number of years. Each on promised to do the same thing; address the looming pension crises that we all know is coming and getting closer with each report. But nothing has been done. Why? Because while everyone knows it is an important issue to solve, it is not urgent. It is not just governments that are guilty of this, we all are.
How many of you do not have a will? It’s not just old people who die. Having your affairs in order is very important. Probate takes long enough as it is without dying intestate. If you have complicated finances it could go on for years if you do not have a will. If you own assets in your own name, you children will be entitled to a share of your assets under the default Succession Act will that is used if you don’t have a will.
When does a will become urgent? When you are either dead or dying. And what if you aren’t capable of writing a will at that stage?
The phrase “it’s not timing the market, it’s time in the market” was cropping up everywhere when Covid 19 cause a shock to the market. They are right. Investing over the long term allows your pension to benefit from compounding, something you benefit more from the longer you are invested for. This means that you either don’t have to put as much into your pension or you will have a bigger pension pot at retirement. We all know how important having an income in retirement is. But who is the retired me? That’s so long away and I have other expenditures now.
There is never a perfect time to start a pension. When I started Bluewater, I delayed starting a pension as I didn’t have the cashflow. One week, I spoke to a number of new clients who were all well ahead of norm regarding pension funding. So after one meeting, I just printed off a proposal form and started my pension. I have increased the premium gradually over time.
When does a pension become urgent? When you start thinking about retiring. And by then, unless you are able to make large contributions, you will find it hard to fund a decent income in retirement. Instead, you will be reliant on the State to tell you when to retire and how much money you will get each year.
How much will the delay in starting a pension cost you? If your pension returns 6% per annum, how much will you need to contribute to a pension to have a fund of €1 million:
The reason we invest is to use money that we earn today for spending at some point in the future. By investing, it can grow (and fall) in value without use doing anything. But just like pensions, there’s paperwork involved in setting up an investment account. That’s the last thing you want to look at after a day’s work. So you put it off and just let the money accumulate in your bank account. The money is still growing as you put in money each month and it’s only inflation that is eating into the real value of the money.
This doesn’t seem too bad. You are still saving and growing the amount you have saved (unless you are spending it instead). And while it becoming urgent may not be the same as something as a pension, it will be costly. Say you are saving for your children’s 3rd level education costs. If you do not invest, it will mean that you earned 100% of the funds used to pay for their education. Whereas someone who has invested over the long term, put less money into their savings plan and used capital markets to grow their money.
Products like income protection, life cover and critical illness plans are there for catastrophe planning. It is unlikely you will need to claim on these policies but if the situation arose where a claim is made, you and your family are in a serious situation with a huge financial impact on everyone.
When does it become urgent? When you are too sick to work, have cancer/ heart attack or are dead. And by then it’s too late.
25 October 2021